Firing state employees won't help revenue drop

Published 4:00 am, Friday, May 15, 2009

Chronicle columnist, Andrew Ross, stands for a photograph inside the studio on Tuesday Jan. 27, 2008 in San Francisco,Calif.

Chronicle columnist, Andrew Ross, stands for a photograph inside the studio on Tuesday Jan. 27, 2008 in San Francisco,Calif.

Photo: Michael Macor, The Chronicle

Firing state employees won't help revenue drop

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Gov. ArnoldSchwarzenegger's latest grim budgets bring to mind assertions by opponents of Propositions 1A-1F that, in the words of gubernatorial candidate Meg Whitman, "We don't have a revenue problem. We have a spending problem." Given that the state is facing a $21.3 billion hole, does not a $11.7 billion revenue drop count as a problem?

According to figures worked up by the state controller, that's the amount by which total "revenue receipts" have declined since April 2008. The three major sources of state revenue - income taxes, sales taxes and corporate taxes - fell by $12.4 billion, a 16.4 percent drop. The only revenue line that grew was "not otherwise classified." The state's Department of Finance is projecting a total revenue shortfall of more than $12 million by next month.

Presumably, these revenue numbers have something to do with California's version of the Great Recession, including an unemployment rate of 11.5 percent. One wonders how throwing thousands more public employees out of work - as Schwarzenegger is threatening and some opponents of the propositions are gleefully cheering for - will further prove that "we don't have a revenue problem."

For details, check out a summary of the controller's report at links. sfgate.com/ZHCL .

For more, see the "Economic Outlook" and "Revenue Estimates" on pages 23-32 of the "May Revision 2009-10 General Fund Proposals" put out by the state Department of Finance, at www.dof.ca.gov.

Trickle-down stress: In a recent column, RBC Capital banking analyst Joe Morfordwarned that California banks in the most trouble are not the biggies that underwent stress tests, like Wells Fargo & Co., but the smaller regional and community banks that have been hit especially hard by the plummeting real estate market.

On Wednesday, it was reported that San Francisco's UCBH Holdings Inc. is delaying filing its quarterly report to the SEC because "the company's assessment of the adequacy of the allowance for loan losses ... (has) not been completed." Defaulting construction loans are the chief culprit, CEO Thomas Wutold the San Francisco Business Times. UCBH already reported a first-quarter loss of $93.7 million.

This comes as no surprise to Morford. At numerous California banks, and Western banks with California outlets, downgrades in their commercial-loan portfolios - real estate, business loans, construction lending - are piling up faster than they can complete their quarterly 10Q's.

"Frankly, I'm becoming a little numb to it," he said. And concerned.

One way to deal with toxic assets and zombie banks? "Researchers in Texas are trying an unusual approach to combat fire ants - deploying parasitic flies that turn the pesky and economically costly insects into zombies whose heads fall off." - From an Associated Press story in Thursday's Chronicle.

Expedia fires back: The online travel service has some quibbles with my Thursday item on the suit the company filed against San Francisco's tax collector, who has been after Expedia for $32 million the city says is owed in unpaid taxes. Expedia's lawyers had not returned repeated calls for comment Wednesday.

As to whether Expedia does indeed owe the money, spokesman Brent Thompson insisted that San Francisco's hotel-tax ordinance as written, and as the company's legal brief asserts, does not apply to "travel booking services to consumers" like Expedia. The city's attempt to tax Expedia, he said, is "unlawful" and, therefore, Expedia has no obligation to pay it. "It's not even a close call," Thompson said.

Presumably all that will be for the courts to decide.

Thompson also begged to differ with my statement, in connection with its refusal to pay the taxes, that Expedia "isn't helping" the city in its hour of financial need.

He cited "data points" from Expedia showing that the company not only spent $24 million in ads promoting travel to San Francisco last year but also that "Expedia travelers" put $67 million in non-hotel sales and use tax revenue into the city's coffers. "We feel we're doing a ton, probably more than anyone else, even the city," he said.

San Francisco will be making its legal response known within the next 30 days.

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